Monthly economic review: July 2017

The Monthly Economic Review is an overview of the New Zealand economy. It includes the latest data on New Zealand’s economic growth, unemployment, inflation, merchandise trade and balance of payments figures, along with certain financial data (such as the Reserve Bank’s official cash rate). The unemployment rate, economic growth and central bank interest rates for several of our main OECD trading partners are also included. Each publication highlights a specific topic of interest. The Monthly Economic Review is produced eleven times per year.

Summary

The economy grew by 0.5 percent in the March quarter, with an increase in milk production resulting in the agriculture industry expanding by 4.3 percent. Partially offsetting this was a 2.1 percent reduction in construction activity, the first quarterly reduction in output for the industry since the June 2015 quarter. Household spending rose by 1.3 percent in the quarter, with strong durables and services expenditure growth. On an annual average basis, the economy expanded by three percent over the year ended March 2017. However when population growth is also taken into account, GDP per capita rose by 0.9 percent over the year, having fallen in the last two quarters.

International oil prices have fallen in recent months, with the price of Brent crude falling to under US$45 a barrel in late June (down from almost US$57 a barrel at the start of the year). An increase in supply is thought to be behind the recent drop in prices. However, current prices are still significantly higher than the lows of US$29 a barrel recorded early last year.

The official cash rate was left at 1.75 percent in June. Reserve Bank Governor, Graeme Wheeler, said that there may be some variability in the annual inflation rate as recent rises in petrol and food prices drop out of the equation. Over the medium term, annual inflation is forecast to return to around 2 percent (the mid-point of the target band). The Governor noted that “Numerous uncertainties remain and [monetary] policy may need to adjust accordingly”.

New Zealand's seasonally adjusted current account balance was a deficit of $2,836 million in the March 2017 quarter, $1,143 million larger than the deficit in the December 2016 quarter. According to Statistics New Zealand, this is the largest seasonally adjusted current account deficit since the December 2008 quarter. New Zealand's net international liability position was $154.8 billion (58.5 percent of GDP) at 31 March 2017, down from $157.5 billion (60.4 percent of GDP) at 31 December 2016.

The latest QV property data shows falling sales volumes, particularly in Auckland. This has been attributed to high prices coupled with stricter lending criteria. This makes buying increasingly difficult for most buyers, except cash buyers, or those with higher levels of equity. Developers are also finding it more difficult to gain finance to build new homes.

The European Union (EU) and Japan announced a free-trade agreement last week after four years of negotiations. The European Commission welcomed “the most important bilateral trade agreement ever concluded by the EU” although ratification by the Japanese parliament and European states is still required.